Critical Access Hospitals Basics of Cost-Based Reimbursement

[Pages:19]Critical Access Hospitals Basics of Cost-Based Reimbursement

Jeffrey M. Johnson, CPA

Partner, WIPFLI August 2015

Basics of Cost-Based Reimbursement for Critical Access Hospitals (CAHs)

Objective of the discussion: To gain a high-level understanding of cost-based reimbursement for CAHs and it's impact on financial reporting

Discussion agenda: ? Provide understanding of differences in Medicare

hospital reimbursement methods ? Understand how CAHs get paid - (Interim rates

vs. final settlement) ? Understand the impact of cost-based

reimbursement on financial statement reporting

Medicare Overview

Medicare reimbursement depends on the services provided: Inpatient and swing bed services: ? Based on 101% of average cost per day for

inpatient services (as computed in the Medicare cost report): Paid on an interim basis using a per

diem rate for routine and ancillary costs Final settlement for each fiscal year

is based on the filed Medicare cost report after the intermediary completes their audit

Medicare Overview

Outpatient (OP) services: ? Based on 101% of cost to provide services to

Medicare patients (as computed in the Medicare cost report): Paid on an interim basis using a percentage of

Medicare charges Percentage calculated by dividing the overall

allowable Medicare costs by the overall Medicare charges, Medicare cost-to-charge ratio Final settlement for each fiscal year is based on the filed Medicare cost report after the intermediary completes their audit

Medicare Overview

Services often tied to a CAH that are not cost-based reimbursed: ? Freestanding clinics ? Professional component physician and non-

physician practitioners ? Hospital-based home health agencies ? Hospital-based skilled nursing facility ? Ambulance services (if not the only

local provider) ? Distinct part psych and rehab units ? Reference lab

Summary of Differences Between Prospective Payment (PPS) Hospital vs. CAH Reimbursement

Type of Service Inpatient OP procedures (Surgery, etc.) Lab

Radiology Other diagnostics Therapies Swing bed Ambulance service

OP clinics (Facility component)

PPS Hospital DRG APC

Fee schedule

APC APC Fee schedule MDS Fee schedule

APC

CAH 101% x Cost 101% x Cost

101% x Cost (Except for reference lab) 101% x Cost 101% x Cost 101% x Cost 101% x Cost Fee schedule (Unless only one within 35 miles, then cost) 101% x Cost

PPS vs. CAH Reimbursement

Type of Service OP clinics (Professional component) CRNA services

Outlier payments

Disproportionate Share Hospital (DSH)

PPS Hospital

CAH

Fee schedule

Fee schedule (reduced SOS)

(Reduced for site of and Method II Billing (if

service)

elected)

Fee schedule (Unless elect cost if less than 800 procedures per year)

Fee schedule and Method II Billing (if elected) OR elect cost if less than 800 procedures per year

Cost (Generally

N/A

insignificant for

rural providers)

Add-on to DRG

N/A

payments

PPS vs. CAH Reimbursement

Type of Service

Indirect medical education (IME) 72-hour rule (DRG window)

PPS Hospital

Add-on to DRG payment Applies

CAH N/A

N/A

Exempt units

Hold harmless provisions (For rural hospitals with fewer than 100 beds and Sole Community Hospitals (SCH)/Essential Access Community Hospitals (EACH))

Sequestration in effect reducing Medicare payments by 2% through 2025

Rehab units Psychiatric units

Applied through December 31, 2012

Limited to 10 exempt unit beds

N/A

Applies

Applies

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